TTAB’s Washington Redskins Decision: the Enforceability and Commercial Impact of Cancelled Trademarks

by Ladas & Parry LLP
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The cancellation of a U.S. trademark registration on any grounds, including disparagement, does not always mean the end of enforceable rights in the mark. However, cancellation may create both legal and financial repercussions in the United States and abroad, as illustrated in the recent case of Blackhorse v. Pro-Football, Inc.

The recent cancellation decision included registrations for “REDSKINNETTES,” two “REDSKINS” marks, and three REDSKINS logos and is the most recent development in a series of suits, the latest of which began in 2012. In the 2012 suit, five Native Americans brought a cancellation proceeding against six registrations issued by the USPTO between 1967 and 1990 to Pro Football, Inc, the owners of the Washington Redskins. The plaintiffs alleged the marks violated Section 2(a) of the Trademark Act, which prevents the registration of marks that are disparaging or derogatory. In its precedential ruling, the Trademark Trial and Appeal Board (TTAB) determined the term REDSKINS was considered disparaging of Native Americans at the time of registration, with approximately one out of three Native Americans finding the term offensive.

The Washington Redskins publicly declared they would appeal the decision and this appeal would be the second one the team has filed in defense of its trademarks. The appeal of a similar 1992 action resulted in the overturning of the TTAB decision for a lack of standing in 2008. A complaint was filed on August 14, 2014 in the U.S. District Court for the Eastern District of Virginia, seeking review of the decision under Section 1071(b)(1). The complaint alleged that the decision made numerous errors of fact and law, violates the First and Fifth Amendments of the Constitution, and is barred by laches.

While it is unclear whether other potentially disparaging marks are at risk of cancellation as a result of the decision, several Native American organizations have announced that they are preparing to file cancellation claims against professional sports organizations, such as the Cleveland Indians, on a disparagement basis. Additionally, in light of the TTAB decision, the Redskins are not likely to be able to apply for and obtain new registrations for the cancelled marks, at least not without updated survey evidence that the marks are less disparaging than they once were. Since the first claim was filed in 1992, the USPTO has refused to register trademarks to the Washington Redskins and other applicants where they have contained the word REDSKINS on the grounds that the term disparages Native Americans. Thus, the USPTO action, Congressional pressure, and rising media coverage of the Redskins decision may affect future trademark applications and influence others to file opposition or cancellation claims against marks they find to be offensive, including ones outside of the professional sports world.

Misconceptions Regarding the Decision’s Effect

In spite of the decision, the team does not have to change its name or stop using the REDSKINS marks. The TTAB determines only whether a mark can be registered with the federal government, not whether it can be used. An owner may still have rights in a mark based on use, known as common law rights, and those use-based rights may still exist despite the cancellation of a corresponding trademark registration. However, unlike federal registrations, common law rights are more limited in their scope, often only enforceable against near-identical marks and in the specific geographic areas in which the mark is used.

Until any further judicial review is completed, the marks will remain registered and the registrant will retain the legal benefits conferred by federal registration. These benefits include the legal presumptions of ownership and of a nationwide scope of rights in these trademarks, the ability to use the federal registration symbol, and the ability to record the registrations with the U.S. Customs and Border Patrol Service, which blocks the importation of infringing or counterfeit goods.

Thus, if the TTAB ruling is affirmed by a federal court and a final cancellation is issued by order of the Director of the USPTO, the Washington Redskins will lose those benefits. On the other hand, a lack of federal registration does not create a free-for-all where any individual can make and sell products bearing REDSKINS marks. If a company decides to produce and sell Washington Redskins merchandise without obtaining advance permission from the National Football League (NFL) team, and the gear creates a false representation that it originated from the team, then the company may be in violation of the team’s common law trademark rights and be forced to pay damages related to the infringing use, no matter how disparaging the mark may be considered.

International Registration, Infringement and Counterfeiting

The owner of a cancelled trademark registration may also face difficulty in combating international infringement and counterfeiting. The Department of Homeland Security and US Customs require ownership of a federal trademark registration in order to impound counterfeit goods entering the United States. Because the registration of a mark with Customs runs concurrently with the term of the corresponding USPTO registration, the Customs recordation effectively lapses once a trademark registration is finally cancelled. This would render the recordation immediately unenforceable and assuming Customs has been made aware of the cancellation, it will no longer seize, and inform the registrant of the entry of, potentially counterfeit goods bearing the mark. Thus, it is possible that an overseas manufacturer of knock-off apparel or souvenirs bearing the REDSKINS marks could get their products through customs without any trouble. However, that still does not prevent the team from suing the manufacturer for common law trademark infringement once the goods have entered.

In addition to issues related to Customs, an owner whose U.S. registration has been cancelled may encounter problems related to its foreign trademark registrations. The cancellation of an underlying application or registration from the home country on which an International Registration under the Madrid System is based may put extensions of those International Registrations to other countries in jeopardy. National registrations filed directly in other countries would not face such risks.

The Washington Redskins have national trademark registrations in a number of countries including Israel, New Zealand, France, the Netherlands and Belgium, Singapore, the Philippines, Canada, and Australia, as well as three International Registrations for different marks from those that were cancelled in the TTAB decision As the cancelled marks were not the basis for International Registrations under the Madrid System, there is no subsequent, direct effect on the team’s non-U.S. registrations. On the other hand, most countries in which the team has registrations have policies against trademarks that are contrary to generally accepted legal norms of morality and public order . Under these policies, the REDSKINS marks may be eligible for cancellation in those countries.

Potential Impact on Retail Partners and Licensee Agreements

The Redskins are the fifth most valuable sports franchise in the world with a valuation of $1.55 billion and their merchandise sales account for approximately half of their $373 million in annual revenue. While a rebranding effort may boost revenue as a result of consumer desire to own the latest merchandise and the collectible nature of residual merchandise bearing the old brand, there are still drawbacks to rebranding. Any rebranding exercise incurs costs of creating and marketing a new brand. Another downside is the amount of time needed to phase in a new brand while allowing retailers and licensees the requisite time to sell off existing merchandise in their inventory. Failing to do so would likely force the company to reimburse the losses of that inventory, the cost of which can vary depending on the size of the company. In sports, a significant variable is also the effect rebranding will have on fan loyalty.

The profit-sharing structure in place in the NFL also poses a substantial challenge in light of the TTAB decision. Thirty-one of the NFL’s teams have entered into a revenue-sharing agreement when it comes to licensed merchandise, meaning they pool and split all the revenue made from licensed products. While a decline in the sales of a smaller-market team’s merchandise may not greatly affect the $9 billion total revenue generated in a fiscal year, a decline in the sales of Redskins merchandise would have far greater impact across the board.

There is a realistic possibility of a decline in revenue in light of increased competition arising with sellers of counterfeit goods not prevented from entering the United States. Retailers may opt to carry a smaller selection of Redskins merchandise, if any at all.

Additionally, licensing partners may contribute to a decline in revenue as they reevaluate the royalty rates in the face of potential increased competition from counterfeiters. Revenue derived from licensing agreements is included in the revenue-sharing system as part of the NFL Trust, which gives the NFL the exclusive right to license all of the teams’ trademarks as a package deal. A final cancellation of the Redskins’ marks may weaken the NFL’s leverage in licensing agreements, as the league and team may have less control against unauthorized use of the marks than before. Considering the Redskins make up such a large portion of the league’s shared revenue, a decline in retail sales and royalties would have a substantial impact on the other teams in the profit-sharing agreement.

Thus, if a mark is disparaging or otherwise subject to cancellation, a brand owner can face substantial difficulties in enforcing rights or establishing a new brand. With an understanding of the business’ goals, counsel can advise on the risks associated with a brand owner’s intellectual property and help the business mitigate the considerable costs associated with litigation and rebranding in the context of a successful cancellation.

The authors wish to thank Danielle Weitzman for her contributions to the research and editing of this article.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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